Recession : Interesting Analysis


Efinancialcareers has done some number crunching this morning and calculated the number of job cuts major investment banks would have to make in order to maintain compensation ratios (compensation costs as a percentage of revenues) in line with 2007’s.

In Efinancialcareers’ own words, the results “range from the farcical (Merrill Lynch) to the disturbing (Credit Suisse), and the reassuring (Goldman and Morgan Stanley)” — the last two, perhaps, not much of a surprise. Based on average pay for the year so far:

Merrill Lynch
Revenues Q1-Q3: 2008 – $834m; 2007 – $19,442m
Compensation costs Q1-Q3: 2008 – $11,170m; 2007 – $11,564m
Compensation ratio Q1-Q3: 2008 – 1,339%; 2007 – 59%
Headcount Q1-Q3: 2008 – 60,900; 2007 – 64,200
Average comp per head: 2008 – $183k
Layoffs over the past year: 3,300
Layoffs required to maintain compensation ratio: 58,195

Credit Suisse (investment bank only)
Revenues Q1-Q3: 2008 – CHF2,736m; 2007 – CHF16,217m
Compensation costs Q1-Q3: 2008 – CHF5,682m; 2007 – CHF8,111m
Compensation ratio Q1-Q3: 2008 – 207%; 2007 – 50%
Headcount Q1-Q3: 2008 – 21,300; 2007 – 20,399
Average comp per head: CHF266k (US$228k)
Layoffs over the past year: None; 1,000 staff added*
Layoffs required to maintain compensation ratio: 16,161

Deutsche Bank
Revenues Q1-Q3: 2008 – €6,102m; 2007 – €14,620m
Compensation costs Q1-Q3: 2008 – €3,250m; 2007 – €5,217m
Compensation ratio Q1-Q3: 2008 – 53%, 2007 – 36%
Headcount Q1-Q3: 2008 – 15,574; 2007 – 17,215
Average comp per head: 2008 – €209k
Layoffs over the past year: 1,668
Layoffs required to maintain compensation ratio: 5,130

UBS
Revenues Q1-Q3: 2008 – minus CHF21,418m; 2007 – CHF11,065m
Compensation costs Q1-Q3: 2008 – CHF4,589m; 2007 – CHF8,326m
Compensation ratio Q1-Q3: 2008 – unquantifiable; 2007 – 75.2%
Headcount Q1-Q3: 2008 – 18,901; 2007 – 22,666
Average comp per head: 2008 – CHF243k (US$208k)
Layoffs over the past year: 3,765**
Layoffs required to maintain compensation ratio: Everyone

JPMorgan (investment bank only)
Revenues Q1-Q3: 2008 – $12,516m; 2007 – $14,998m
Compensation costs Q1-Q3: 2008 – $6,535m; 2007 – $6,404m
Compensation ratio Q1-Q3: 2008 – 52%; 2007 – 43%
Headcount Q1-Q3: 2008 – 30,989; 2007 – 25,961
Average comp per head: 2008 – $211k
Layoffs over the past year: None; 5,298 staff added
Layoffs required to maintain compensation ratio: 5,647

Morgan Stanley
Revenues Q1-Q3: 2008 – $22,881m; 2007 – $28,476m
Compensation costs Q1-Q3: 2008 – $10,726m; 2007 – $13,365m
Compensation ratio Q1-Q3: 2008 – 46.9%; 2007 – 46.9%
Headcount Q1-Q3: 2008 – 46,383; 2007 – 47,713
Average comp per head: $231k
Layoffs over the past year: 1,330
Layoffs required to maintain compensation ratio: No additional layoffs required

Goldman Sachs
Revenues Q1-Q3: 2008 – $23,800m; 2007 – $35,246m
Compensation costs Q1-Q3: 2008 – $11,424m; 2007 – $16,918m
Compensation ratio Q1-Q3: 2008 – 48%; 2007 – 48%
Headcount Q1-Q3: 2008 – 32,569; 2007 – 29,905
Average comp per head: 2008 – $351k
Layoffs over the past year: None; 2,664 staff added***
Layoffs required to maintain compensation ratio: No additional layoffs required

* Between Q1 and Q308 vs. Q1 and Q307, excluding 500 layoffs announced in October
** Between Q1 and Q308 vs. Q1 and Q307; excluding 1,901 layoffs announced in October
*** Between Q1 and Q308 vs. Q1 and Q307, excluding 3,200 layoffs announced in October

It’s easy to poke holes in this, for instance, why use ratios from 2007 — the peak of the IB cycle, etc., but as an illustration in a worst-case scenario for banks, it’s quite interesting. Or terrifying, depending on your position.

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